Results

Astro has entered into an agreement with TM for the carriage of Astro SuperSport HD and Astro SuperSport 2 HD channels will be made available on HyppTV from 1 Aug- 13 to 31 Jul-16. The channels will contain selected live matches from the Barclays Premier League’s (BPL) Seasons 2013/14, 2014/15 and 2015/16 and other sports content.

In addition, the parties have agreed to enter into further agreement for the carriage of selected NJOI channels subject to certain conditions.

Highlights

2 out of 14… As indicated in Figure #1, Astro has 14 sporting channels and is only sharing two of its sporting channels. We believe that certain key exciting matches are held at Astro’s other sporting channels to retain its comparative advantage.

Monetary compensation… We believe that royalty is paid to Astro as some form of compensation. However, we believe that the amount is minimal for the time being as HyppTV only has an estimated 168k subscribers, making up 4.7% of Astro’s 3.58m subscribers.

HD and IPTV awareness… The content sharing deal will help promote and market the usage of High Definition (HD) view format and familiarity with IPTV, which in the end may drive higher ARPU for Astro as consumers prefer watching in HD format and subscribe to Astro IPTV, which garners better EBITDA margin due to lower broadcasting costs. Currently, Astro has ~1.4m HD subscribers.

Developing the Astro brand… We are positive with this content sharing deal as it indicates Astro’s continuous pursuit to move up the value chain as a content creator instead of just being a content aggregator. In the past, the sporting content was under the ESPN and StarSports badge, now we see BPL’s matches under the Astro brand itself with localised pre/post/half match analysis/commentary.

Monetising NJOI… Meanwhile, NJOI will not only benefit from royalty payment but also higher Adex revenue due to the increased viewership through HyppTV.

Risks

Unexpected economic slowdown; Threat of new players; High content costs; and Regulatory risks.

Forecasts

Unchanged.

Rating

HOLD

• Positives: (1) Monopoly of pay-TV; (2) Higher subscriber base through stronger penetration rate and ARPU growth through new product offerings; (3) Strong take-up in IPTV.
• Negatives: (1) Blocked from raising subscription rates; (2) Drop in consumer confidence sentiment.

Valuation

• TP maintained at RM2.98 based on DCF with an unchanged WACC of 7.3% and terminal growth of 1.5%.

Source: Hong Leong Investment Bank Research - 1 Aug 2013